Q1 2021 JetBlue Airways Corp Earnings Call
[music].
Good morning, My name is seat I would like to welcome everyone to the Jetblue Airways first quarter 2021 earnings Conference call. As a reminder, today's call is being recorded at this time all participants are in a listen only mode. I would now like to turn the call over to Jetblue head of Treasury and Investor Relations.
<unk> for Zillow Hurley. Please go ahead.
Thank you Kate good morning, everyone and thanks for joining us for our first quarter 2021 earnings call.
This morning, we issued our earnings release and the presentation that we will reference during the call.
All of those documents are available on our website at Investor Dot chart Blue Dot Com and has been filed with the SEC.
In New York to discuss our results are Robin Hayes, our Chief Executive Officer, Joanna Geraghty, our President and Chief operating Officer, and Steve priest, our Chief Financial Officer.
Also joining us for Q&A are Scott Laurence head of revenue and planning.
Dave Clark VP of sales and revenue management, and Andres Barry President of Jetblue travel products.
This morning's call includes forward looking statements about future events.
Actual results may differ materially from those expressed and the forward looking statements due to many factors and therefore investors should not place undue reliance on these statements.
For additional information concerning factors that could cause results to differ from the forward looking statements. Please refer to our press release 10-Q, and other reports filed with the SEC.
Also during the course of our call. We may discuss several non-GAAP financial measures for a reconciliation of these non-GAAP measures to GAAP measures. Please refer to the tables at the end of our earnings release of.
A copy of which is available on our website.
And now I'd like to turn the call over to Robin Hayes Jetblue CEO.
Thank you Oscar and good morning, everyone and for those regulars on the call you will notice of change of voice.
Gratulation on the you're.
You're on your position and assuming the Investor relations portfolio well for my thanks to the long call Us and Scott here and the room with me who.
One of the IR team and also obviously, we have to say farewell to day, since then and he's not leaving Jetblue.
Dave has done an amazing job of the head of our IR painful many years and like many leaders and jetblue he's been doing double duty for the best part of the yeah, and so David now needing Oh efforts as the VP of any of the NDA, which is.
Our partnership.
With the American Airlines and the Davis, a single mindedly focused on delivering the benefits of the NII and tons of growth and low fares and for Jetblue and our customers. So Dave the very best and your new role of as well.
And that's the sad we also have Andre it's Bobby is joining us on the call. Today is the New addition, president of Jetblue travel products and so with that let's get on with the cooler Guy and good morning, everyone and as we've done since the start of the pandemic I'd like to take a moment to remember another crew member we have lots of the COVID-19.
Alexander of other time.
And remember about Jetblue family for nearly a decade, Alex joined US in October 2011 is the ground ops crew member and Tampa and our Hearts go out to Alex with family Friends and fellow crew member City worked with as it does to all of US who have been impacted by COVID-19.
And 90.
I would now like to thank start by thanking our amazing 20000 crew members for the extra ordinary work through the most challenging time and our history. They continue to work together to serve our customers with just such incredible passion and determination.
The crew members have demonstrated and decisiveness as a team to overcome the many challenges presented by the pandemic, while setting the foundation for Jetblue, the recovery and future success.
Starting with the presentation, let's move to slide four.
I'll start with an update on our ESG efforts and area of wet Jetblue continues to lead the airline industry and generate value for our stakeholders.
We are taking actions to reduce the impact on the environment and address the societal changes and demand mitigating business with and enhancing our long term financial returns.
I will provide an overview of the targets, we announced last quarter.
Starting with the environment, our ultimate goal is to achieve net zero carbon emissions by 2043.
And this last July we achieved carbon neutrality for all domestic flying using carbon offsets.
We've also the interim 2030 goals, which include reducing emissions per ASM by 25 per cent from 2015 levels converting 10% of about jet fuel to the sustainable aviation fuels and changing over half of our ground support equipment vehicles the electric.
And the short term, we are investing and next generation fuel efficient aircraft to reduce our emissions and increase returns of 10.
I'll, let you venture subsidiary is positioning Jetblue to help US chart the path towards the net zero emissions over the long term with investments and startup companies like <unk> and University of hydrogen.
Moving on to social we're focused on empowering our crew members and protecting our kind of pipeline and enhance diversity equity and inclusion strategy.
The recent debt at the recent direct Chovan verdict reminds us how George fluids Moda has been the catalyst for change and over the past year. We have examined we have re examine how we can help tackle systemic societal racism by focusing on diversity of equity at Jetblue.
We have accelerated our efforts towards building a more diverse slate of leaders and all creating greater access to select quip hall without the emergent emerging talent platform, including a new Gateway College program.
We are also committed to grow out of spend with minority and women owned businesses and we are ensuring our brand strategy enhances trough and build connections with customers and the diverse communities we serve.
Lastly regarding governance, we have embedded controls and increased our accountability with oversight from from an ESG Subcommittee of our board of Directors. And addition, we recently incorporated the ESG factors of performance measures and to our senior leadership incentive compensation plan.
Turning now to slide five.
And the last quarter, we reported and adjusted loss per share of $1.48.
Although the EPS remains of negative territory, we have seen meaningful progress and the demand recovery and the starting to gain momentum from the groundwork we've laid to emerge from the crisis as a stronger jetblue.
Mid February we have seen a meaningful rebound in the leisure travel we are encouraged by the improved and booking trends and with COVID-19, vaccinations Rolling out we believe the ongoing demand acceleration will continue into the summer.
We are bringing back capacity in response to the demand and we plan to capture a growing share of improving revenue from our customers and our leisure and VFR visiting friends and family of visiting friends and relatives markets.
More importantly, we are taking a number of actions aimed to bring us back on the path towards superior margins.
Moving to slide six.
Looking back to our work from 2020, I could not be more confident and our future.
Teams continue executing a comprehensive recovery plan, reducing our cash burn we building on margins and repairing our balance sheet.
Starting with cash burn.
We've seen positive cash from operations for March and this milestone as our first step towards achieving positive EBITDA and returning to profitability. We expect all the improving operating results and balance sheet will support jetblue over the coming months as leisure demand approach at pre pandemic levels.
So the build our margins we have been executing network commercial fleet cost and capital allocation of initiatives designed to help as we build our margin and the path of balance sheet.
With respect and network, we are focused on strengthening of six focus cities and accelerating our recovery.
We have taken advantage of unique opportunities.
Notably and available to us before the pandemic, we've also expanded and diversified our roadmap to better serve areas of relative demand strength and some markets will remain long term strategic investments for Jetblue.
And New York and Boston, we forged the unique alliance with American Airlines that delivers low fares, a trusted brand and.
Standing services to more customers load.
We will soon announce our inaugural flight for London, bringing both of our award winning Mint and corporate up on the low fat the transatlantic market. Starting later this summer.
Moving to the revenue front, we continue to implement our plan to improve our unit revenues over the coming years.
I'll highlight three areas, where we have made significant progress and Joanna we'll provide additional details and a couple of minutes.
The first is our latest update of fare options, which provides our customers with more of low fat.
Secondly, we are and the contracting stages of our co brand credit card RFP, which we expect will meaningfully enhance the economics of our loyalty program.
Third we're seeing momentum with Jetblue travel products over the last two months Jetblue vacations has performed well ahead of 2019 levels. We're very excited about last month's launch of Paisley of new travel site that Leverages smart technology to provide tailored offers the customers based on the individual itineraries.
And it's early days, we are already seeing great customer engagement and believe it will be a significant contributor for future earnings growth.
On the cost front, we remain committed to executing on plan our cost flow as capacity comes back on.
The low cost business model enables us to compete with low fares and while driving higher margins. We continued to reshape our fixed and variable cost base to provide a path to produce better than 2019, CASM ex fuel in 2022.
Okay.
Regarding fleet of order book solely consists of next generation aircraft that will help us execute on network plans, while producing structurally better margins. We are thrilled that our first eight to 20 entered into service yesterday. We've also started selling transcon flights on our first <unk> hundred 21 Neo.
Low density aircraft and tomorrow, and we expect to take delivery of our first <unk> 201 long range aircraft.
Both aircraft types of equipped with our incredible next generation Mint cabin.
Lastly, we plan to maintain a balanced approach to our capital allocation investing and aircrafts that we build our margins while reducing debt last.
And last quarter, we took a step towards optimizing our capital structure, reducing the overall cost of funding with the successful successful convertible debt offering.
In conclusion.
As we continue to navigate the challenges of the current year. We are so optimistic about our future we will make the changes needed to weather the crisis, while staying true to our mission and values and placing people people and culture at the heart of our company.
We have a truly great opportunity ahead of us and of laid the foundation to make jetblue, a stronger airline for years to come.
John over to you.
Thank you Robin I'll start with my deepest thanks to our crew members for ensuring a safe operations as we ramp up capacity in response to accelerating demand.
We are pleased to have more people on the U S had been vaccinated and quarantines and testing requirements for travel have been removed and the north east and other key locations across our network.
We are setting up of operational on all of our operations accordingly to serve the growing number of customers returning to jetblue.
Moving to slide eight.
And the first quarter of revenue declined 61% year over to a six point sequential improvement from the prior quarter sitting at the better and of our latest planning assumption.
While we initially anticipated trends improving during the quarter, we saw a bigger than expected step up and demand for leisure travel beginning in mid February.
Cash revenue increased from $6 million per day in early January the 15 million by the end of March and.
Additionally, the link of a booking curve is now largely back at pre pandemic levels as customers increasingly plan further ahead for their travel with the Jetblue.
As expected first quarter average load factor is the finished at 64% and we ended the quarter with load factors in the mid seventies.
We are pleased with the broad improvement in demand across all of our geographies, our Latin and Caribbean franchise again proved resilient and recovered quickly from the setback that followed the cdc's order requiring testing for international arrivals.
Demand for our Florida markets increased driving the quarter and our Transcon region also strengthened of quota of quarantine measures are relaxed and our east and West coast focus cities.
For the second quarter of 2021, our planning assumption for revenue and the decline between 30% and 35% year over to the largest sequential improvement and our revenue since the pandemic started.
We expect unit revenue to improve meaningfully driven by both increasing load factors and improving yields and our system load factors have been and the mid 70% since the start of April and we expect them to remain at that level or higher through the quarter.
Based on forward bookings, we are optimistic about the upcoming summer months and April we have seen cash revenue average is high of $17 million per day.
Our latest bookings and survey data show that customers are increasingly willing to take trips they've put off since last year. We are also seeing increasing attach rates for jetblue vacations products, which signals that leisure traffic is ramping up well.
However, we will remain flexible given the potential.
For future restrictions that could could slow down a return to travel as.
As Robin mentioned, we are continuing to deploy initiatives to grow our unit revenues as capacity normalizes towards pre pandemic levels.
We updated our fare options platform to more competitively cater to price sensitive customers with our blue basic offering whether in flight product and Changeability of Blue basic is now the best value proposition and the ultra low fare segment.
Our new Blue and Blue extra offerings also provide unique features such as guaranteed overhead bin space and flexibility addressing longstanding customer frustration.
We estimate these updates will drive an approximate 1% increase and unit revenue and steady state and.
In addition, we continue to make progress with our new revenue management system. The value of these tools will become increasingly beneficial and industry wide demand recovers and load factors continue to rise.
We also extended our booking window to 331 days and I've seen and immediate and significant booking impact following the rollout and.
And the medium term, we expect a meaningful increase and our revenue base from our network investments and notably from our alliance with American Airlines.
Also anticipate to start reaping the benefits of our investments and Jetblue travel products.
And so far this year, we have seen attach rates growth sales bookings and margins at all time highs.
We believe this performance is the result of the product revamp we put in place and early 2020, our updated pricing strategy and significant advancements and merchandising and targeted marketing capabilities.
Finally, we are getting ready to announce the outcome of our Cobra and RFP. We believe this will help us close the gap and loyalty revenue to our peers over the next few years, we anticipate sizing our revenue initiatives and the expected dollar contribution to earnings as our baseline revenue stabilizes over the next year.
Turning to capacity on slide nine and the first quarter of our flown capacity declined 41% year over to during the pandemic, we've been focused on balancing supply and demand for managing our capacity to maximize revenue and rebuilt our margin for.
For the second quarter of 2021, our planning assumption is for capacity to decline approximately 15% year over too given the strong sequential improvement and demand.
Our schedule of our firm through the end of June.
Over the next few weeks, we plan to make some additional changes to manage the peaks and troughs for the rest of the summer.
We are well positioned to ramp our capacity in the coming months and expect only 10 aircraft from our fleet to remain and storage for the summer.
Our thoughtful approach to offer and crew members opt out and voluntary time off programs early on during the pandemic has allowed us to remain nimble and help us scale back as demand normalizes.
Over the past year. Our crew members have continued to undergo training and are returning to work and numbers to scale up our operations and we are hiring and specific areas to address rapidly increasing demand.
We will of course maintain our flexibility to scale and utilization up or down as needed while protecting the financial health of Jetblue.
In terms of markets. We are very pleased with our VFR and leisure performance. This quarter, we added service to Miami and key West, which further expands our relevance and south Florida.
Two weeks ago, we operated our first flight and Guatemala City and in mid June we plan to launch our inaugural flight to Los Cabos Mexico.
We're making great progress implementing our northeast Alliance with American Airlines, which we expect will provide a path for jetblue to grow profitably over the coming years and to better utilize the scarce infrastructure at New York and Boston airports.
We launched code sharing and late February and announced a further expansion of last week, our customers are benefiting from new destination improved schedules more frequencies and of course more of low fares.
To date, the NEA has announced a total of 58, new markets 32 flown by Jetblue and we're looking forward to additional announcements and the future.
Through the alliance, both Jetblue and American will have new growth opportunities and the northeast for example, we expect the triple our flights at Laguardia Airport from 16 flights per day prior to the pandemic to more than 50 by the summer of 'twenty 'twenty two.
Notably, we expect to reach our largest ever number of flights and New York later this year.
Our customers will benefit from more than just a greatly expanded network and more of low fares for our true Blue members, we will offer the ability to earn points and redeem travel on American and we are currently working to establish reciprocal benefits between our loyalty programs.
I will close with the big Thank you for the many Jetblue teams, who are working tirelessly to ramp up of the operation and serve our customers.
While we are pleased with demand returning so quickly we acknowledge the tremendous hard work the team put in over the past two months.
Thank you for remaining true to our values and setting the foundation for our future success with that over to you Steve.
Thank you Joanna and good morning, everyone.
Although this I'd like to thank our crew members and leaders I could not be proud of the resilience to overcome the challenges presented by the pandemic.
And to ensure the future success of Jetblue.
I'll start on slide 11, where the brief overview of our financial results for the quarter.
Revenue was $733 million down 61% for year over too.
Operating expenses were down 43% year of over two <unk>.
Excluding the benefit from the <unk> operating expenses were down 26% year over to <unk>.
Adjusted EBITDA loss was $458 million and GAAP loss per share was <unk> 78.
On the adjusted loss per share was $1 and 48.
As Robin mentioned in March we reached breakeven cash from operations and we.
We took the first step towards repairing our balance sheet.
Starting with the operational performance of first quarter. Adjusted EBITDA was ahead of the range of anticipated in mid March.
This was the result of improving revenue trends and continue to successfully manage our cost structure, despite increasing fuel prices.
For the second quarter, we estimate that EBITDA will range between negative 100 and negative $200 million.
Reflecting an acceleration of demand, partly offset by cost pressures from fuel prices and airport rents and landing fees.
And on EBITDA basis, we will believe that we will reach breakeven and the third quarter and expect to remain in positive territory for the.
The end of the year.
Turning to slide 12.
We are managing through the volatile demand environment with a laser focus on cost control as you bring back capacity to meet demand.
During the first quarter, our adjusted operating expenses declined 26% year over year.
And to better than our initial assumptions and despite higher fuel prices.
And this excludes the payroll benefit of $299 million from PSP too.
Our planning assumption for the second quarter as the reduction of our total operating expenses of approximately 8% year over to this.
And this quarter over quarter increase of 18 points is primarily due to scheduled increases and capacity as we ramp of the operations to serve customers during the summer.
As we navigate the current environment will continue to manage our cost structure, while mitigating near term headwinds, namely higher fuel prices rents and landing fees maintenance and labor costs driven by the scale up we are pleased as the result of our aggressive cost management, we are starting to see CASM X fuel declining meaningfully from.
41% year over two and the first quarter to 17% and the second quarter.
Moving to slide 13.
Since the start of the pandemic they've gone deep on our cost structure with a focus on our fixed cost base, adding to the continued momentum from our structural cost program.
We expect to achieve better than 2019, CASM ex fuel and 2022, providing a path to expand our EBITDA and ultimately our pretax margin.
Last quarter, we announced the plan to reduce the 2021 and fixed cost between 150 and $200 million compared to 2019.
We intend to preserve the savings is it got capacity back to pre pandemic levels.
The work focuses on five key areas.
One driving automation and rolling out technology to improve processes and support functions to driving efficiencies and all of it infrastructure for example by consolidating our data centers and moving data and applications into the cloud.
Consolidating our real estate footprint and both support centers and apples for continuing to rationalize our business partners spend the five remaining disciplined and limiting our discretionary spend.
Regarding our variable costs, we continue to focus on driving efficiencies and productivity across the business as we bring back on frontline crewmembers to support the operational ramp up we expect to continue to see the run rate savings associated with the stretch across both of them and we will continue to execute our plan to increase our.
Fuel efficiency for.
For the rest of 2021, we expect some headwinds related to maintenance as we approach 2019 capacity levels of <unk>.
Continuation of higher rents and landing fees and on airports and so.
Well as some inflationary headwinds.
And I'd like to thank our teams again for the hard work and engagement to rebuild on margins as we execute on revenue and cost initiatives.
Now turning to liquidity on slide 14.
At the end of March our unrestricted cash and short term investments was $3 2 billion.
Of 40% of 2019 revenue.
Given our strong liquidity and improving revenue trends with switching our focus for repairing our balance sheet and lowering our total cost of debt.
In March we successfully executed the $750 million convertible debt offering with a coupon of half a percent.
And we partially used these funds to pay down on our $550 million.
All of the facility.
And the first quarter. We also received over $500 million from the second round of payroll support from the federal government.
And the salaries wages and benefits of our crew members.
We expect to receive an additional $76 million and the forthcoming days related to PSP too.
We are grateful to the administration for their continued support of our industry and for crew member jobs.
We remain very comfortable with our liquidity position.
Given our expectation for the recovery through 2021 and continued support from the federal government at.
At this time, we do not intend to draw down on the remaining one point and type it in dollars available to us under the cares.
Ah <unk> program as.
As a result of loyalty program remains on most valuable unencumbered asset.
And the event, we need additional liquidity, we believe we can ask Seth attract.
Attractive and competitive financing and various markets.
Moving to slide 15.
And the first quarter, we took delivery of three <unk> hundred <unk>.
<unk>, our first aircraft with a re imagined and mint cabin.
The fleet currently stands at 270 aircrafts and we expect to take delivery of six additional shelf during the second quarter.
Including two <unk> hundred <unk>, two <unk> hundred 21 net.
And two <unk> hundred 21 I'll ask.
We continue to forecast of approximately 1 billion and Capex spend for 2021 of the majority of which consists of aircraft, which we expect of funds using cash.
As the first <unk> hundred 20 enters into service, we are particularly excited about the outstanding economics, It provides with 30% and better cost efficiency per seat compared to about 890 <unk> we.
We expect to take 69 additional deliveries to the middle of the decade, including seven this year.
We believe this fleet will be pivotal so how big of reshape our cost structure and growing on margin.
Moving to slide six statements.
At the end of March the debt to cap ratio was 59% of <unk>.
More increase from the prior quarter driven by the opportunistic converts for desktops, and saying we might be March the pay down the revolving credit facility and lower cost of funding.
Going forward as you produce positive cash from operations, we plan to prioritize paying down high cost debt with the goal of reducing our weighted average cost of debt to below pre pandemic levels.
We also intend to continue and strategic and measured approach to return to investment grade metrics and the debt to cap ratio of between 30 and 40%.
We believe the as we grow back our amazing culture will continue as the power of our strategy. We are confident the on network and commercial initiatives cost reduction efforts on long term investments will put us back on a path to superior margins on.
And on behalf of the Jetblue leadership team the answer of Guy and thank our crew members as well as our business partners and our communities and all the onus for all of the support with that we will now take your questions.
Thank you Robin Joanna and Steve State, we're now ready for the question and answer session with the analysts. Please go ahead with the instruction.
Thank you and.
A reminder to ask a question and you'll need the press star one on your telephone to withdraw your question press. The Patty please standby all of the compile the Q&A roster.
Your first question is from Savi <unk> from Raymond James Your line is open.
And everybody.
And I was just kind of curious as you.
On the <unk>.
Especially on the cost side, you know what.
And what expectations are kind of embedded behind your EBITDA and look for the second half of 'twenty. One just wondering if there are some kind of ramp up costs that go away and and generally you know what you expect from a demand standpoint.
Hi, Good morning, Savi, Steve had and it's a good question.
I think the first thing I would say is obviously and a high fixed cost of capital intensive business.
With capacity of di and even 15% the continues to be inherent inefficiencies and the cost structure that as you start to continue to grow capacity the alere.
Alleviates over time.
We are continuing from the on a quarter to quarter base in terms of the cost structure as we drive.
To drive more efficiency. So if you think about Q1 as of Q2.
Capacity is up 50% quarter over quarter, but I don't on fuel costs are only going on 22%. So you have got those and having sufficient says as you scaled back but.
And I'm sure some of the essence of your question is the guys regarding some of the headwinds that we've discussed.
And obviously as we embed the fixed cost initiatives that we're working through and 2021, and we will continue to see efficiencies associated with that.
Certainly there are some material inefficiencies and the will be mine and the second quarter until we scaled back thinking about the lots of pilot the minimums in terms of ours, which are obviously additionally impacted by the cares Act.
And thirdly, as we get ready for the.
And the summer and we.
We are and carrying some costs as we ramp up the summer peak think about some crew member cost of size with labor and maintenance to make sure that we have the fleet where they are.
And then as we've always talked about rents and landing fees I think you'll start to see some alleviation and that.
The industry traffic continues to normalize because you know the particularly those cities the I've seen a precipitous drop in traffic and they have been impacted quite clearly.
And again when that normalizes youll see some sort of a.
Rationalization of the cost so there's a number of areas I think will become more efficient as we navigate through the rest of the year and the business ultimately scales up.
That's helpful color, Steve Thank you and Joanne if I might quickly ask.
On the you mentioned that the majority of the new markets are performing in line to better than expected. Just curious if there are any common trends or characteristics and the new routes that are working versus those of you have to kind of pull back on.
Thanks, and have a great question I think the two trends I would say leisure is obviously performing well and those jurisdictions are locations, where there are travel restrictions in place and or higher case counts tend to lag some of the some of the other markets that I'm that we're seeing performance and but overall very pleased with the performance of the new markets that we've added I'm very encouraged there will be some that will be.
The last thing markets. We've also as we always do have been pretty disciplined and the markets and underperforming and making sure that we scale of those back.
And thank you.
Your next question is from Jamie Baker from Jpmorgan. Your line is open.
Hey, good morning folks.
I assume you have pretty detailed financial forecasts and at least for the first year or two of the Trans Atlantic expansion can you compare how those forecasts are looking today to what they were in early 2020, obviously, the heathrow outcome might be different than what you had planned pre COVID-19, but.
I'm curious if your overall Atlantic forecast have strengthened and if so by how much.
Hey, Jamie good morning, its Robin and I'm going to ask Scott to take out one great Hey, Jamie I. Appreciate the question and you know obviously the trans Atlantic has seen quite a bit of of change here I think the the first thing I would say is that.
And that we have a strong fundamental offering here and the ability to disrupt the premium cabin and something that we feel very confident that we're going to be able to do.
I think if you sort of look at the Trans Atlantic.
These would be what we expected pre COVID-19.
It's clear that the initial portion of this is still going to be and a recovery mode I think for us.
We had based our business plan around the concept of people actually paying their own money to sit and business class rather than.
You know people you know looking at debt the fares and historically been somewhat extortionate with.
And with corporate discounting and the front cabin and so I.
Again, I think if you look over all of our forecasts and our potential as we move forward I think it is continues to be very strong and continues to be very similar to what we initially expected and we are we look to move forward confidently as we began transatlantic service.
Okay and that's helpful. And then second you know a few years ago. The Laguardia perimeter rule was a topic.
Jetblue publicly objected to a potential relaxation of the rule of if I recall, but if we fast forward to today I mean your fleet capabilities of obviously expanded you've got the relationship and Laguardia with American and I mean, it is perimeter of something you've discussed with American are you permitted to and.
And could it be part of the evolution and the relationship at Laguardia.
Thanks, Jamie I'll take that and the first of all as of the tradition on our April call. Let me wish you a very happy birthday week. Thank.
Thank you Robert.
No.
And I view on that hasn't changed I mean, whilst the our aligns with America and has allowed us to make some.
Positive changes and our Laguardia.
It's still a very very fraction of our largest competitor there the new York airports workers and the ecosystem and.
We are.
Talking about making some significant investments through our partners at JFK.
And as such that if the appointment of rule was to ever be modified or changed so it's our view that I need to come with the significant slot divestiture.
To make sure that sort of new ecosystem continue to work together.
And together, Okay fair enough. Thanks for the update I appreciate it and take care.
Your next question is from Joseph de Nardi of Stifel. Your line is that for you.
Hi, Thanks, good morning.
Joanna you talked about co brand economics, improving and I think you said closing the gap.
Between your earnings and peer earnings over the next few years and just want to understand kind of what the expectations are in 2019, you guys reported about $200 million and fee revenue from the card.
Last year, we reported 465 ease of your expectation that you can close that gap within a few years.
Hi, Joe Thanks for the question Yeah, I mean, we're very encouraged by what we're seeing with the results of the Cobra and RFP as Robin mentioned in his opening remarks, we are and the middle of the contract negotiations with the final list and Ah I describe it as a meaningful improvement over existing economics of our deal and we'll be prepared to discuss more on.
The coming weeks.
Okay. That's helpful and then Steve just on the CASM expectation for kind of improving CASM on the same level of capacity can you talk about and maybe what's working against you and you take into account the structural cost initiatives and just kind of having that capacity production with a leaner organization what are some of the the.
<unk> kind of moving against you on thank you.
Thank you and good morning, Joe It really just goes back to a couple of other things in the in the relatively short term the I'll just discuss the survey.
Thank you no debt and an industry like ours.
The fixed cost capital intensive even the short levels of capacity.
Capacity reductions of have a headwind and the thing as we sort of enter 2022 and.
Sadly.
Rents and landing fees and such.
A key aspect in terms of a headwind that meets the sorts of normalized general labor and price inflation of about the items that we need to sort of think about as we sort of go through and on the assumption that we.
We continue to get the fleet and the work forward as we go through 2021, and making sure that the maintenance is in good shape as we sort of got to the year, but obviously outside of those three areas as we get into 2020 two there's a whole host of work that we completed coming into the 2020 year or on the structural cost program that will mean.
And flea and change the paradigm from available standpoint and.
On the 150 to 200 million.
Of the fixed cost initiatives, which are outlined in our prepared comments, which will also offset some of those cost pressures.
Helpful. Thank you.
Thanks, Jeff.
Your next question is from debt and Brandon of Glinski of Barclays. Your line is open.
Hey, good morning, and thanks for taking my question, So I guess for Robin or Steve or Joanna.
Can you talk to your ability to get back to 2019 profitability levels and maybe even exceed it like you had and the prior plan what are the proper thresholds here do you guys need to get back to where you were from a capacity standpoint, and then see revenue recover or are there other levers that you guys can pull.
Hi, Brian and good to hear from you. This morning, Steve here I would sort of go back a little bit and the way back time machine and think about how we were coming into 2020.
Without 250 to $3 of EPS and the five building blocks that were behind the whole of our business from a commercial.
Cost of fleet capital allocation perspective.
And as we've gone through the pandemic not on any of we looked from a defensive standpoint, but we've also been on the offense. So the of towards the extensively about our cost structure by this and the stretch of cost standpoint, really focusing around the valuable efficiencies, but also on.
On the fixed side, so well sort of put up to one side of the fleet initiatives violent standard in good stead and as Robin referred to we took our first 20 yesterday and incredibly excited about the potential economics of that being to Jetblue. As we go forward from the margin standpoint, and addition to the 321 day.
Which are going to continue to ramp and the fleet and then there's a whole host of revenue initiatives that we're driving forward with Joanna and so it's about the Cape and RFP, which talks about.
The North East Alliance Credibly excited about which will continue to drive a lot of effect and.
Growth for the northeast with American Airlines partnership do you think about the revenue management initiatives that we spoke of driving and place and then the incredibly exciting travel company that we are developing with Jetblue travel products and the great work the on drugs and these guiding Phil. So when you think about costs do you think about commercial do you think about fleet and.
And the acceleration that we've taken place with regards to balance sheet repair and capital allocation and I.
Feel very optimistic about the future margin capabilities of Jetblue as we as we evolve into next year of and beyond.
Steve I appreciate that response, and and I guess Joanna as a quick follow up I think the restrictions and the northeast and specifically in New York have been lifted and Beth I don't think I'd get harassed by the government of any more of getting off the plane. So.
Have you seen any pent up demand in these regions and.
Good revenue be exceeding for the upside here as people realize the it's a lot easier now yeah.
Yeah, I mean, it's of Great question, we were very pleased to see the northeast restrictions come off and I think that's giving us some wind and our sales as we step into the summer timeframe overall of the network is performing well across multiple geographies, which has been on fantastic for us, particularly the step into the summer and our peak travel period. So very encouraged by New York very encourage by Massachusetts also encouraged by the Caribbean Frank.
And what we're seeing down there the Bahamas updated their guidance last week and so.
And that's all the news and we continue to encourage the islands to the kind of work and a coordinated fashion to reopening of safe thoughtful way that makes it easy for customers of travel there.
Yeah.
Thank you.
Your next question is from Helane Becker of Bank, sorry, Helane Becker from Cowen Your line is open.
Thanks, very much operator, hi, everybody.
And thanks for the time on the guidance that you're giving for the second quarter of I know this is the short term.
And then but how should we think about the percentage that's traffic improvement versus the percentage that's fares improvement and in other words, just the opportunity to raise fares.
And as demand increases here through the summer.
Thanks, Helane of Great question as you think about in terms of the 50 50 I think the good news for the summer is we're growing tries and while we're growing a S M and that's being driven by digital double digit improvements of both load factor and and and yield also point out that the booking curve is normalizing, which is getting Dave Clark and his team and ability to heal better yield manage.
Our flight so that's been a great a great change as well.
Okay. Thank you I think.
I think that with factors for my two.
Two questions.
[laughter].
Your next question is from Duane <unk> from Evercore. Your line is open.
Okay.
Hey, Thank you good morning.
A question for Robin if you it for.
We're still around and maybe more of an industry question.
The EU commentary on letting vaccinated U S passengers traveled to Europe.
What did we actually learn.
This weekend and what do you view as the next steps.
From a U S perspective, and and how would you handicap the odds of of this getting implemented.
Time to book Summer travel.
Yeah, no. Thanks, too I know what part of the way where did you think I went and it's on earnings growth.
And while Youre doing a good job of the of deferring and delegating, whereas the team sport isn't it fair and anyway.
It was the it was a positive development and I think it's a I just wanted to build on the you know what geologists debt because I think we're seeing that now and more and more markets. We started thing and the domestic market as states.
Study and move some of the restrictions.
We started the state and in some of the Caribbean market, because they sort of.
Figure out what works and doesn't work and you know trying to strike the strike that right balance between public health and and making markets and accessible and you know the number of EU countries. As you know way of tourism is of a significant driver and so I'm confident and I think it ultimately depends on the countries the ability to.
Bring down the case count and vaccinate people because that's what gives you a sense of that sort of some of the case count reductions are permanent and what we've seen here and the U S and other market as the case count start to come up again.
<unk> got back here and that definitely impacts of traffic and so you know I think.
Providing the EU and the country and that you can kind of catch up with the vaccination program. You know hopefully that makes the summer of open and accessible and if I look at the U K because obviously, that's the the top of our list them and they've done a terrific job of the vaccines and I think.
They are really on track to some form of opening up here for the.
For the summer.
And then if you're willing to comment on it.
Question for the team.
And what percent of capacity would you envision.
Pointed at Europe, and the fourth quarter and then how do we think about that balance of growth longer term. So in other words is it.
As domestic of priority until you get back to full 2019 levels.
Or how should we be thinking about it kind of 'twenty two 'twenty three of that balance of growth between domestic and Europe, what I'm going to deflect that to the skull Duane even though I can think I could give you a very good answer.
And I think it seems for it indeed.
So again I think if you look at Europe for us, it's going to be de Minimis in terms of the S. EMS as a percent of system and it really is limited.
So I think that's the the first thing that I would lay out there that the again.
Again, and the near future you're looking at six hours that are coming in and they just do not produce and.
And I've asked them to be.
To really push up the chart in terms of domestic versus international.
You know I think the this continues to evolve for US are you know we were very concerned and we saw the testing come in for international and we've seen particularly in the in the Caribbean and region that that has recovered nicely and so as we go for it I think youre going to see a balance of growth for domestic versus international and that has look.
Kind of like it has historically for us. So again, we're in the midst of of leisure oriented recovery I think that we're built for leisure. We're excited about that I think that actually plays right into our strength and our you know as we allocate.
Allocate the growth going forward I think that it makes of domestic international is gonna be what's what's optimal for us and the and the short to medium term.
Maybe if I could sneak one more and can you speak to startup costs that you're incurring here June quarter September quarter for.
For the Europe launch and thanks for taking the questions.
Okay.
So again I think as we look at this the.
And we went through the crisis, we did not lay people off and I think while we want to make sure the.
That were leading the burden and wears out for both possible I don't think you're going to see of significant <unk>.
The impact from that as we go for it and I think again as you.
As we look at the summer and the fall we look forward the getting the airplanes up and the air and doing so and a a way that it has our customers happy.
Thank you.
Your next.
Question is from Catherine O'brien from Goldman Sachs. Your line is open.
Good morning, everyone. Thanks for the time.
For me first a question for Joanna just about the RASM driver and you've laid out completely understand you'll need to wait to give more details on the co brand agreement until the contract is finalized.
The high level should we think about that is the largest of the three rather and driver so the versus the additional fare option uptake and the jetblue travel products impact.
Great question and my Mic was off apologies. Thanks, Great question. So I would you know where we're going to go out with firm numbers as we start seeing a more stable revenue environment clearly the co brand card of the significant contributor of their options one day or two dot one we've already communicated is one point of view of revenue and then some of the work and the true.
All of products travel products World, we're calling about a 100 EBIT based upon what we said in 2018 investor meetings and so that is on track on and were optimistic that were and hit those numbers I would not underestimate the contribution of the American Airlines NDA agreements.
Or frankly, some of the smaller initiatives on the 331 scheduled changes or the new revenue management changes. So overall, we're encouraged by the momentum behind these initiatives they're unique to jetblue.
And we'll be prepared to give greater detail in the coming in the coming months as the revenue environment stabilizes co brand is a significant contributor in line with you know some of the other larger initiatives.
Okay got it and then maybe the second question for the so you guys noted that you know the first priority for cash flow when it turned positive and paying down high cost debt can you talk about what opportunities you have to delever over the next couple of years, maybe both of the scheduled payments.
Or any opportunities to prepay debt and then and then just how do you think about pacing and those opportunities.
Good morning, Casey its a good question with the very measured and strategic as we've gone through the last sort of 12 to 15 months of going through and not only have we had an eye on.
Bringing liquidity and cash into jetblue, but based on the facilities that we have used to bring cash into the Jetblue. We saw volume mentioned says, it's not sort of you're right, but sort of China as well as we've gone through it. So we do have a number of opportunities.
Based on how they go for it I mean, I am delighted that we generate from positive cash from ops in March and going forward. We're not good position. We are we obviously have the PSP to top up and passed with P. Three coming and so we are going to take every opportunity to pay down on the debt and also and they reduced the weighted average.
Cost of debt.
Coming into the pandemic I'm on a weighted average cost of debt was in the high for these.
And sitting around for now.
And now and as I mentioned in my prepared comments, we expect our weighted average cost of debt side of the forthcoming months to actually be at a level that's lower than that.
It was coming from the pandemic, so I feel not sort of incredibly comfortable with where our liquidity sits on the strength of the balance sheet, but also in terms of driving down on.
Financing costs as Jetblue that goes forward.
Okay. Thank you.
Your next question is from Ravi Shanker from Morgan Stanley. Your line is open.
Thanks morning, everyone. Jonas if I can just follow up on the on the previous response on the RASM completely appreciate that the current environment and is really messy, but given the initiatives you have with international and ventures, and and the core bank card and everything else kind of much like the detail you've given us on on the CASM side.
And in terms of thinking about 'twenty two red for 19.
Can you comment do you have really good confidence that the 22 RASM can be and are comfortably above 2019, given those idiosyncratic and wanted to do the rehab.
Yeah. So good question you know, we're not in a position right now specifically to the revenue initiatives to break out on exactly where they are as we said you know what we'll do that at a later date, but I would say about 2022. However is we are encouraged by what we're seeing of summer and.
And if we believe that carries into the fall and into the winter. We are optimistic that 2022 has the potential to be a strong recovery year and.
Leisure has led the recovery, we believe there's still pent up demand for travel that will carry into the fall and if you look at GDP growth in 2020 two versus 2019 at the four points higher.
And you know frankly, we think travelers have extra savings and with the access of the vaccine there'll be additional locations opening up you add that to our series of revenue initiatives and.
And we think that 2022 could be a strong a strong recovery year. The other piece I'll mention is if you think about jetblue and how we're positioned.
A trusted brand unbelievable crewmembers committed to our success of great product and <unk>.
And largely domestic leisure with the history of serving these markets. It's what we do coastal markets. Our network and we think this is going to serve us very well for a recovery year.
Got it thank you and maybe the follow up because of a longer term question on the venture side. Obviously, you are a leader and kind of investing in and Saf and commodity be using that for your ESG targets, but the.
And the hydrogen investment was what it was pretty interesting and kind of caught my eye can you shed a little more light on kind of what you're thinking there and kind of how you think hydrea and fits into your long term for the west.
No great question Ravi I'll take the I'll try and be brief because I could talk about this topic for.
Hours.
You know I think of suddenly Jetblue takes the view that the sustainability of our industry as we come out of the pandemic will be on extremely critical topic and something that we need to demonstrate a real continued commitment to reduce our carbon.
Carbon emissions and in order to continue to and the right to the to grow so over the short to medium term, we're very focused on areas like sustainable aviation fuel and continuing.
Continuing to try to work with the U S government on a more efficient and air traffic control procedures and as you know jetblue is investing billions of dollars of more fuel efficient airplanes, we are aggressively replacing.
And equipment with the much greener and electric ground equipment.
But for airlines to make the reach.
Some of the longer term aspirations around.
Zero net carbon and do it in a way that doesn't rely on offsets, which we clearly just view of the a bridging strategy.
We have to consider alternative.
The types of aviation.
Alternative ways of pairing of reaction. So we stay close to the electric and plain industry I think we will recognize the.
And that's I think of at least over the next couple of decades gonna be confined to smaller airplanes out of a shorter distances.
We are and tweaked and Airbus has made similar comments as well about the ability for hydrogen to provide a sort of and longer term cleaner fuel option and so this is why we have our tech ventures of subsidiary.
It allows us to.
Get smarter on these things and we have a real focus of J P. The at the moment on the considering investments and the sustainable aviation space.
Great. Thank you.
Your next question is from Hunter Keay from Wolfe Research.
Your line is open.
Hey, good morning, everybody. Thank you.
How are you guys thinking about the fall.
After kids get back into school, obviously, not looking for any revenue of our capacity guidance or anything like that but how do you think about a good case scenario and.
And of Bad case scenario in terms of just sort of how your consumers behave.
Yeah. Thanks Hunter I'll take it and then I'll, let Dave Clark add some color. So I think we're still in a pandemic and so we're very mindful of that while we are as we've said encouraged by what we're seeing on stepping into the summer and we also don't know what we don't know and so that's sort of at the heart of our comments around remaining nimble and flexible.
And how we manage capacity stepping into the fall time frame. We do believe based upon what we're seeing that there will continue to be pent up leisure demand and Dave will get into a bit on what we're seeing on the corporate side, but we're cautiously optimistic that assuming there aren't any increase and travel restrictions that the vaccine continues to take a hold on that cash.
<unk> counts stabilize or come down that on the fall has the potential to be to be a to the to be good for jetblue with obviously, a trough period historically for US you know as we think about the holidays and customers that have not had a chance to visit their families over the Christmas Hanukkah holidays Thanksgiving, we think that has a opportunity to.
And very strong strong period for us and Dave do you want to ask and color on the corporate side sure. Thanks, Joanne and and I agree I think the fall is actually the the trickiest period of forecast from right. Now we know of leisure is holding up well, but the leisure demand base in general on the fall is lowest the cause.
Compared to any of the time of the year and for the real question is how quickly will business and corporate ramp back up.
And just we've been seeing good growth in these areas, but also are quite low base early in January or year over to corporate travel is still down about 95 per cent, it's been improving for now.
Minus 80 per cent or so in terms of the bookings so good improvement, but off of low base as we stay close and talk with our largest customers we.
We do expect to see.
The phased approach as the.
The go through the summer, especially of returning the office and late summer early fall and they expect to really accelerate travel and the September October timeframe, but exactly when that occurs and how robust and it comes back.
And it's something that we're still looking at very closely as we think about fall revenue and capacity.
Alright, Thank you and then.
We've just sort of just to flush out the cost commentary a little more for 'twenty, two and you think about CASM.
And on your P&L are you guys reported which do you think which single line item on the unit cost basis has the best prospects of being below 2019, and which one do you think is going to be the toughest.
Thanks, and good morning.
And I think.
The toughest and the one that we're keeping the at the closest control on the coaches focus on should I say is really around rents and landing fees.
Because that has continued to be one of the headwinds for the industry and <unk>.
You mentioned not specifically says we'll have to see how that evolves I think from a positive standpoint, I would suggest distribution I think the the commercial team has done some tremendous work kind of the last few years in terms of driving outside of that strategy also looking through the lens of the business part of it in terms of how we think about cash.
The style no other.
And in terms of sales, but also servicing for our customers and really using automation and driving our direct proposition. So on the on the negative side and the precious side that we've got the surrounding phase on the policy side of the cost of sales and distribution.
Thank you.
Your next question is from Andrew <unk> from Bank of America. Your line is open.
Hi, good morning, everyone.
Steve just in terms of your 30, plus 40% debt to cap coal the what.
Timeframe do you think you can achieve that in and more importantly, do you think this is a goal that you can get to organically or do you think there needs to be some other form of capital range to get there.
Hi, Andrew Good morning, and and Great question. So we saved the towards about this and really are again very pleased and delighted that we source of generating positive cash from operations in March.
And also we've sort of taken and the momentum as we've gone through this and the fact.
Appreciative of the administration for the support that is given the industry.
We've always said it we expect it to be between the 2023 year and the 2020 for yet so that's why the sorts of thinking about getting back into that situation.
The situation.
Cadence of the pandemic with the second strongest balance sheets and the industry, we continue to be and not place.
We continue I mean, we'll see how things evolve.
But I would anticipate based on generating positive cash from ops sort of going through the position that we've been through on I've been happy with the market transactions with <unk>.
And we've done.
And as to be through organic means, but you know all of our.
And I went and got ahead of myself and <unk> and 'twenty.
<unk> 2020, three 2020 four was quite a while but that's our current working and planning assumption at the moment.
Great. Thank you and then just my second just a quick follow up.
Apologies if I missed this but just your comments on getting back to 2019 or better CASM levels. In 2022 have you said what level of capacity or assuming next year relative to 2019. So yes. So it's back at sort of a 29 ish levels of capacity. So that's the sort of level that we talked about.
On the 19th Okay. Thank you.
Is that 21 on.
2019.
Understood. Thank you and most of it if it must be of the British accent I apologize for that.
Your next question is from Michael Lindenberg from Deutsche Bank. Your line is open.
Hey, Good morning, everyone. You know Joanna you brought this up and maybe you were just about the moving to 331 days and the booking window.
What was it before and presumably this is graduations weddings family reunions, and maybe people who book cruises out 910 months.
Less price sensitive segment is that that's the pick up there or is there something else.
Related.
Hi, Mike This is Dave Clark I'll take that one previously were selling between seven to 10 months of schedule of sort of on the seasonal block basis.
Now we're consistently at 231 days and and Youre right on the the type of traffic. The book's 10 of 11 months of advance. These are big events, either family events, big milestones and things, where the trip and giving the the reservation book the importance of getting.
And getting it booked ahead of time for the most important parts of the customer. So we're happy to be able to take more of that traffic put some revenue on earlier on the booking curve and generally yes, its not as price sensitive as closer and traffic.
Hey, Dave have you thought I know, there's at least one carrier I can think of that's now gone beyond the 331 and with the cruise industry, saying that people are now booking out more than a year have you and because you guys are big and Fort Lauderdale have you thought about actually extending it for that type of passenger or is it just.
Too far out.
I think for now and we're really pleased with where we are it's only been a couple of months and the initial results are good.
We will keep our eyes open and the future of no short term plans.
Okay, and then just a quick follow up on the fleet I think on it was mentioned that this summer you'll only have 10 aircrafts and storage, but if we look at the fleet that's operating through the summer how does the utilization compare versus what it was back in 2019, I mean, if you have sort of of block hour per day.
21 versus 2019. Thank you yeah. Thanks. Thanks for the question. So we're slightly below 2019 levels at this point, we expect them to approach closer to 2019, as we step into the summer time from a little bit of little bit lower, but but getting getting back there.
Okay, great. Thanks, Thanks, John and thanks, David.
Your next question is from Myles Walton from UBS. Your line is open.
Thanks. Good morning, I was wondering if you could comment in the context of the down 15% of capacity and down 30 to 35 per cent a year over to what Latam Caribbean looks like versus 19, and I mentioned those are probably trending above 19 levels and if you think.
Proportionally benefiting from the Lockdowns elsewhere and the world.
From these kind of games become.
The more sustainable on a go forward basis and and.
The leisure destinations that you for officers.
Hi, Myles this is Dave Clark I'll take that one of those.
And Caribbean regions Ben.
At the very top and of our strong performing regions. Both from a revenue and the capacity standpoint. If you look ahead of it or selling schedules, we actually have capacity to that region of.
You have or two in July and August are reflecting the strong demand and performance there.
Okay, and then could you be a little bit more specific on the PSP three of cash that youre going to get in and this current quarter Steve. Thanks.
So the.
Thanks for all of the administration, if you think about it from a.
U S industry standpoint, PSP too.
It's around 15, Betty and pass pizza the.
14 billion and for the industry, So you're still talking low 19% versus the past PSP two numbers I should be in the ballpark for jetblue and $500 million.
And obviously, the I think there's a blend of grants and loans and embedded in that.
Yep.
Our last question is from Dan Kinsey from Seaport Global Your line is open.
For squeezing me in here a couple of questions. I. Appreciate you know the corporate demand is pretty depressed right now, but you know regarding the relationship with the American are there any examples of accounts that you've already talked to jointly and whether or not you've seen any any corporate wins and so you know I guess I'm just trying to get some perspective on are the small.
All are fortunate accounts or they see fortune 100 accounts of the bigger ones and just related to that what is the cumulative collective corporate spend that you've been blocked from historically that you could potentially tap into for the first time.
So this is Scott and I will say that we're early enough that we're still sort of working through the process to handle joint sales and again I think the the goal here is to make sure that we're providing competition and in our case, you know lower fares and a great experience to the customers and the NAA markets. So.
You know I think that's something we're gonna be rolling out here and the the short term and we look forward to of working jointly with our partner on that and and I think again.
You know providing appropriate competition and a number of the markets, particularly in New York that we haven't played in a previously.
And that collect the spin is the 10 billion and 15 billion potentially that you could you know.
The the wallet youre looking to tap into and so we're.
Looking at each other here I think we will follow up on that I don't have a good answer for you.
Okay.
Second question here you know the.
The new flying and the first quarter I think it was 15% of the total flying.
What percentage of that fly and was in support of the New American partnership and what percentage of the overall network does the the American relationship cover.
So the relationship itself covers.
Out of 66% of our network, which touches sort of the the NEA airports and that that number has grown and a little bit as we've.
You know as we move forward so you're going to see is we're able to enter laguardia and based upon the NEA.
You know that that number comes up a bit so.
A big chunk of of what we added was either added associated with the the NDA or and anticipation of the NDA, So and number of the markets, where we're able to provide competition.
Whether that's of Newark with the the dominant carrier there at Laguardia of with the dominant carrier there.
What we're doing is sort of enjoying the benefits of of breaking up a number of monopolies here and I think that's you know that's something that that can work for us as we're playing the role of of our of the disruptor.
Very good thanks.
And that concludes our first quarter 2020 One conference call. Thank you all for joining US. This morning, and we hope you all have a great day.
And again that will conclude today's conference. Thank you for your participation.
Okay.
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